The New Economics of Space

During mid-to-late January, Space X will launch the Crew Dragon Spacecraft on a test flight to the ISS. Space used to be the exclusive domain of nation states and the likes of NASA, not anymore. Today, the launch cadence of rockets traveling to space is now every other week. What does this mean for the space business and other industries?

The space services business is a 330 billion dollar business where the use of commercial-off-the-shelf parts, miniaturization, and new players bring cost-saving such that high schools can send a payload into space. Why is this launch so significant? It is no longer about satellite payloads but delivering people not by NASA but a private business.

The cost of getting into space

According to NASA, it cost the American taxpayer on average 450 million dollars to send the space shuttle into orbit. For corporations sending broadcast and telecom satellites, depending on the payload and orbit desired, it is roughly one third to two thirds the cost of the space shuttle.

Traditionally (again depending on your payload and orbit), launch costs account for 35-40% of overall budget. But that is just sending your payload into space.

Satellites builds must handle the huge g-load and shake during the first 8 minutes of launch. This is no small engineering feat.  Consequently, satellite build costs account for 50% of the operating budget. There is also a lengthy approval process when acquiring spectrum. No spectrum. No satellite. This adds another five to six percent to the over cost. Lastly but not least, insurance costs can equal 10% of overall costs, depending on the failure rate of your launch provider.

Space X and a new generation of launch providers

Elon Musk’s goal of re-selling used rockets at a discount has led the launch industry to re-examine its one-time use rocket manufacturing process and its adherence to the cost-plus business model. A thirty percent discount on a 50 million dollar rocket appears is attractive. From a capital intensity perspective for SpaceX, launch vehicle reuse also attractive, provided continue to manage the risk levels associated with refurbishment, their designs are modular enough to incorporate new technologies to improve performance, notwithstanding the insurance costs.

The re-use of rockets means the launch cadence increases at a lower capital cost. Lower costs is good for any industry that relies on satellite communications or remote sensing. SpaceX has become an effective disruptor to the likes of ROSCOM and ULA. With the Falcon Heavy, Space X will reportedly deliver satellites into space at nearly a third of ULA’s costs (look at “Unit Costs” on page 109 of the DoD FY 2018 Air Force budget).

SpaceX isn’t the only new satellite launch player. There are quite a few on the small satellite side. Rocket Labs in New Zealand delivered their first commercial payload of six small sats in November of 2018. But that is not where the money is at.

The new economy

As we previously alluded, delivering additional sensing capability into space means the enabling new services. We asked Chris Stott, CEO of Mansat and Chairman Emeritus of the Space and Satellite Professionals:

Just as 4G enabled the gig-economy, remote sensing from providers like Planet can provide near real-time geospatial data to farmers, hedge funds and insurances companies need. Three to five-meter resolution imagery can be used to monitor crop health and variations for an agribusiness. A commodities firm can use the same data can consequently predict futures, and so on. With the expectation that the large constellations will be in place within the next ten years, satellite operators will likely become the new telecom operators delivering services directly to you.